Latest news with #Smoot-HawleyTariffAct
Boston Globe
5 days ago
- Business
- Boston Globe
How tariffs work, and who pays them, as Trump's levies take effect
The levies have for months prompted concerns about higher prices, making cars, refrigerators, produce and other items that the United States typically sources from abroad more expensive. Get Starting Point A guide through the most important stories of the morning, delivered Monday through Friday. Enter Email Sign Up Consumers are facing an average effective tariff rate higher than at any point since the 1930s, after the protectionist Smoot-Hawley Tariff Act took effect, according to The Budget Lab at Yale University. Advertisement Trump has said there may be some economic pain associated with the tariffs but that it would be worth it. And U.S. markets - which tumbled in April after the tariffs were announced - have since reached record highs. So what are tariffs, and why are they so controversial? How do tariffs work? Tariffs are like a sales tax, applied at the border, to the importer of a certain good. Often, this importer is a U.S.-based wholesaler or manufacturer. 'If a person in the United States buys something from Mexico for a dollar and the tariff is 25 percent, then they pay the Mexican $1 and they send 25 cents to the U.S. government,' said Lawrence Christiano, an economics professor at Northwestern University. Advertisement There are a number of reasons the government would want to impose tariffs. First, these levies can raise public revenue. In the example above, this would be the 25 cents paid to import a dollar's worth of Mexican products. In fact, tariffs were historically used to raise revenue in the United States before the nation had an income tax. 'It was much easier to count stuff coming into the country, like how much tea is being unloaded on the ship, than to figure out how much a farmer grew and sold to another farmer when there weren't banks,' said Jason Furman, an economic policy professor at Harvard University, who served as President Barack Obama's economic adviser. In a Truth Social post on Wednesday, Trump said that billions of dollars would start flowing into the U.S. from other nations because of the tariffs. Second, tariffs can theoretically incentivize domestic production and protect certain industries from being undercut by foreign competitors. If a company doesn't want to pay the tariff to import from Mexico, they may look around the United States to see where else they could get those same products. In some cases, tariffs are imposed to counter perceived or real instances of unfair competition, said Brett House, an economics professor at Columbia University's business school. This might be 'where foreign suppliers are dumping goods below the cost of production on local markets.' That said, there are work-arounds. The importer might go to a third country to import the same goods. Or Mexico, in this instance, might reroute its goods through another country where tariffs don't apply and then on to the United States. Advertisement Such a recourse could be illegal - for example, if documents are falsified to say something was made elsewhere - said Thomas Pugel, emeritus professor of economics at New York University. Or it can be legal: shipping components and 'then doing enough transformation in that third country that it legally is, legitimately is, a product of that third country,' Pugel said. Why does Trump want to impose tariffs? Trump has cited both the raising of tax revenue and boosting domestic production when arguing for tariffs. But they can also be used as a bargaining chip to extract a promise or policy outcome from another nation. The president has framed some of the tariffs as a response to the flow of migrants and drugs across U.S. borders. He has denied that he's using the levies to get concessions but has also said his threats have produced quick results. In January, Colombia agreed to accept deportation flights after Trump said the U.S. would impose sanctions and tariffs on the country. In February, the White House paused tariffs on Mexico and Canada after the nations' leaders promised to send more troops to the U.S.-border and appoint a fentanyl czar, among other measures. More recently, Trump threatened to levy heavy tariffs on Cambodia and Thailand if those governments failed to reach a ceasefire. And he imposed a 50 percent tariff on Brazil, citing charges against former president Jair Bolsonaro, a Trump ally. Who pays for tariffs on imports? In the short term, importers pay for the cost of tariffs. Exporters who want to remain competitive in the market could lower their prices. But that doesn't necessarily offset what importers pay; in the 2018-19 U.S.-China trade conflict, for example, export prices didn't fall enough to overcome the added costs for importers, said Felix Tintelnot, an associate economics professor at Duke University, citing recent research. Advertisement This means that in the longer term, the costs added by tariffs are often passed on through the supply chain to consumers. In some cases, this takes time. Businesses can be reluctant to increase prices if they believe that consumers will interpret it as price gouging, Christiano said. Some companies have been eating the costs from tariffs, but a growing number including Procter & Gamble and Nike have in recent weeks said they plan to raise retail prices. Tariffs can have other repercussions, such as triggering retaliatory tariffs from affected countries. Several nations including China, India and the European Union bloc have proposed or imposed their own import taxes against American products. Furthermore, tariffs can degrade foreign relationships or disrupt supply chains that are heavily integrated across borders; the United States has a free-trade agreement with Canada and Mexico, passed under the previous Trump administration. One example of that is the American auto industry, House said. 'Some parts of the supply chains and those manufacturing processes go back and forth across the border multiple times before they result in a finished good,' meaning 25 percent tariffs could be imposed multiple times on cars produced by General Motors, Ford and Stellantis, but not cars imported from Korea and Japan. For those reasons, markets are highly sensitive to the ramifications of tariffs, as seen by the slump in U.S. stocks early Monday before the deal with the Mexican president allayed fears. Advertisement How long could it take for prices to rise? Consumers could see the price of nondurable goods, like fruits and vegetables coming from Mexico, increase more quickly than that of durable goods, Tintelnot said. That's because importers of durable goods - who may have stockpiled inventory to prepare for tariffs - can absorb the effect of the levies in the short term by using their stockpiles. When tariffs were raised on washing machines in 2018, for example, it took nearly two months for those higher prices to be reflected in stores, he said.
NDTV
17-07-2025
- Business
- NDTV
Trump Reaps $50 Billion As World "Chickens Out" On Tariff Retaliation
US President Donald Trump, mocked for " always chickening out," has reaped nearly $50 billion in revenue from his aggressive new tariff regime, while much of the world has hesitated to hit back. Data released by the US Treasury shows customs revenue soared to $64 billion in the second quarter, up $47 billion from the same period last year, a historic high. Four months after Trump launched his aggressive new trade policy, only China and Canada have implemented significant retaliatory tariffs. Trump's policy imposed a minimum 10 per cent global tariff, 50 per cent levies on steel and aluminium, and 25 per cent duties on automotive imports, prompting fears of a full-blown trade war. Those fears have largely not materialised, due in large part to global restraint. "Trump has made it clear that he is prepared to raise tariffs further in the face of retaliation," Marta Bengoa, professor of international economics at City University of New York, told The Financial Times. "Many countries learned from the 2018-2019 trade war that retaliation often leads to counter-retaliation rather than negotiated solutions." China has mounted the most sustained pushback, yet its tariffs haven't translated into comparable financial gains. Chinese customs duty income rose just 1.9 per cent in May 2025 compared to a year earlier. Canada's response was notable but brief: it imposed C$155 billion in retaliatory tariffs earlier this year but has since pulled back under economic pressure. Other major US trade partners have refrained from tit-for-tat responses. Many are still negotiating behind the scenes to avoid further escalation. The European Union, the world's largest trading bloc, has prepared a retaliatory tariff package targeting Euro 72 billion worth of American goods, including aircraft, bourbon, and automobiles, but has delayed implementation, Reuters reported. Officials cite the August 1 deadline Trump set for trade negotiations as a key factor behind the hesitation. "They affect the whole spectrum of US relations, including those regarding security," said an EU official familiar with the talks, linking trade decisions to geopolitical issues like US support for Ukraine. Major companies, including Apple, Adidas, and Mercedes-Benz, have shifted sourcing strategies and absorbed some costs to minimise consumer fallout in the US market. Trump's tariff levels are the highest seen since the Smoot-Hawley Tariff Act of the 1930s. Mexico, the United States' largest trading partner, has refrained from retaliation. President Claudia Sheinbaum has instead prioritised a negotiated solution, citing economic pragmatism. Even China, which imposed tariffs as high as 145 per cent, scaled back to 30 per cent after a 90-day truce agreed in Geneva in May. Canada, too, has retreated from its initial "elbows up" rhetoric, with Prime Minister Mark Carney shelving plans for a digital services tax and opting not to mirror Trump's move to double steel tariffs. Looking forward, the European Commission is quietly warning of a potential turning point. Trade Commissioner Maros Sefcovic warned that a 30 per cent tariff on EU exports would make transatlantic trade " almost impossible."
The Mainichi
27-06-2025
- Business
- The Mainichi
U.S. tariff rate hits historic level of 25.9%: Japan trade report
TOKYO (Kyodo) -- The effective U.S. tariff rate on all imports rose to as high as 25.9 percent under President Donald Trump, surpassing levels not seen since the protectionist policies of the Great Depression, the Japanese government's annual trade report showed Friday. The U.S. tariff measures as of early April, including an increase in the levies on China to 145 percent, reached a "historic scale," the Japanese trade ministry said, adding that frequent changes in Trump's trade policy are creating "heightened uncertainty." According to the ministry, the effective tariff rate -- the actual rate applied to imports -- was 19.8 percent in 1933, after the United States enacted the Smoot-Hawley Tariff Act in 1930 to protect American businesses and farmers from foreign competition by significantly raising tariffs on imported goods. The report by the Japanese Ministry of Economy, Trade and Industry cited data from the International Monetary Fund as a reference. The April rate also reflected new tariffs on the auto sector. The U.S. effective tariff rate has since declined after Washington and Beijing agreed in May to roll back a significant portion of each other's steep tariffs, marking a de-escalation of their tit-for-tat trade war. Japan's simple average tariff rate stood at 3.7 percent in 2023, according to data from the World Trade Organization.
Business Times
05-06-2025
- Business
- Business Times
How to invest through Trump's turbulent tariffs for a young investor
[SINGAPORE] China and the United States have agreed to reduce reciprocal tariffs on each other for 90 days and commit to trade talks, a move that has calmed investors fearing a global slowdown. Knowing that, how should you invest differently? Buy stocks, they say – but which ones? Stocks from practically every developed country will benefit. Or buy the US dollar, which investors have fled from since the tariffs? Perhaps sell gold, which investors have lately been turning to for safety? The problem, as you may have already realised, is that unless you had insider knowledge that the tariff pause was going to happen, it's probably too late to do all of these things. The S&P 500 stock market index jumped 3.3 per cent (that's huge for an index) on Monday (May 12), following the tariff pause announcement. The US dollar surged while gold lost 2.7 per cent. Some may say that the news of the tariff pause is 'priced-in'. As regular Joe investors, that's the challenge we often face. We'll often be late if we try to make short-term trading decisions based on the news we read. (Trading bots and professional traders would have reacted before we finished reading the article.) A NEWSLETTER FOR YOU Friday, 3 pm Thrive Money, career and life hacks to help young adults stay ahead of the curve. Sign Up Sign Up We're at the stage now where the US tariffs on most countries, including China, have been temporarily lowered. (Additional tariffs on Chinese imports were reduced from 145 per cent to 30 per cent, and the universal 10 per cent tariffs on most countries remain in place.) While financial markets cheered the move, businesses are still unsure of what will happen after the 90 days. So, how should we invest when the future is so uncertain? 🕜 How long is 'long term'? Firstly, don't panic and avoid knee-jerk reactions. One of the golden rules of long-term investing is to stay invested and not panic sell at the first hint of trouble. Your stock investments may rise and fall dramatically from week to week. But zoom out, and you'll see that stocks will rise over the long term. But there's nuance to this truism – I'll touch on two. Firstly, the US stock market often bounces back quickly after a decline. This may take months or a couple of years. Some crashes have taken longer. If you had invested in the S&P 500 index before the dot-com bubble in 2000, your investment wouldn't have grown even after 10 years had passed. Going further back to the Great Depression in the 1930s, the S&P 500 took 15 years to recover. Christopher Tan, chief executive officer of wealth advisory firm Providend, notes that it was during this time that the US enacted the Smoot-Hawley Tariff Act, now widely blamed for worsening the Great Depression. The Act raised US tariffs on foreign imports by about 20 per cent – sounds familiar? While there's no telling if history will repeat itself, it's important to prepare for the possibility of prolonged drawdowns to our portfolios. And if we can't stomach that, take steps to strike a balance that'll help us sleep well at night. 🧺 What you're invested in matters Secondly, we've so far been talking about the S&P 500, the de facto measure of the US stock market that tracks the performance of the 500 leading companies listed in the US. It's often said that all you need for investments is to buy an S&P 500 index fund, and you're set. While investors who followed this bit of advice have profited greatly, experts have warned that investors who hold only an S&P 500 index fund may not be diversifying their investments enough. While the US market has done well over the past 100 years, there's a growing worry that things will not remain the same in the future, especially given US President Donald Trump's on-again, off-again stance on tariffs. With volatility ahead, many analysts recommend reducing risk to protect your capital. After all, Trump's trade war has only paused, not ended, and the US' 10 per cent tariffs on most foreign goods are still in place. But rather than sell off your investments and wait for things to settle down, consider spreading your funds across different assets and geographies. Diversify by geography: If you're heavily invested in the US stock market, consider adding stocks or index funds from countries as well. Alternatively, you may wish to invest in a fund that tracks a globally diversified index such as the MSCI All-Country World Index or the FTSE All-World Index. An added benefit of diversifying your portfolio beyond the US is that it reduces currency risk. With the recent weakening US dollar, those heavily invested in US stocks may have experienced their portfolios losing value in Singapore-dollar terms. Diversify by assets: If you're heavily invested in stocks, consider adding other asset types into your portfolio that can cushion the volatility in the stock market. Commonly, investors have turned to bonds for this because they tend to do well when stocks do badly. But this hasn't been the case in recent years, such as in 2022 when both stocks and bonds suffered negative returns. Alternatives include gold, which has been the best-performing asset class this year. Gold prices surged more than 20 per cent this year to date, but many analysts believe it can go higher. Gold is often described as a safe haven asset because it is a reliable store of value through times of geopolitical uncertainty and inflation. Central banks around the world have also been buying up gold as they seek to diversify their reserves from the US dollar. Financial advisors typically recommend not holding more than 10 per cent of your portfolio in gold, in the same way you won't want to hold too large a percentage of an individual stock. TL;DR
AllAfrica
19-05-2025
- Business
- AllAfrica
Moody's US downgrade rings alarm on Asia's dollar assets
Moody's reminds Asia of risks of being Washington's banker TOKYO — If Pan Gongsheng gets tired of central banking, the People's Bank of China governor may have a future in hedge fund management. In March, before the April chaos in US debt markets and last week's US credit downgrade, Pan's PBOC and the State Administration of Foreign Exchange (SAFE) displayed impeccable market timing, quietly reducing Beijing's leverage to the dollar. So much so that Beijing is now only the No 3 holder of US Treasuries, leaving the dubious No 2 honor to the UK. As recently as 2019, China was the top financier of Washington's fiscal imbalances. Japan is now on the hook for the most — US$1.1 trillion. The trouble for China, of course, is that it still has $765.4 billion of exposure to a dollar that's as vulnerable to collapse as it's been in decades. US Treasury Secretary Scott Bessent's impulse to dismiss Washington losing its last AAA rating and push ahead with the very policies behind the move may invite more downgrades — and even greater trouble for the dollar. Bessent's boss, US President Donald Trump, doesn't get all the blame for Moody's Investors Service revoking the pristine rating it first gave the US in 1919. It takes more than one presidency to run up a national debt approaching $37 trillion. But the negligence and tone deafness toward basic economic reality leaves little question why Moody's acted now, on Trump 2.0's watch. Bessent's we-wouldn't-have-done-anything-differently tone in Sunday talk show appearances explains why. Many of the giant tariffs that cratered the stock market, reanimated the 'bond vigilantes', and sent the dollar sharply lower are still with us. Traders can rejoice at Trump's lowering China taxes to 30% from 145%. But it's still at levels seen in the 1930s, when the Smoot-Hawley Tariff Act deepened the Great Depression. Markets can think Trump learned his lesson from acting so erratically — and losing virtually all of America's top allies in just four months — or admit the obvious. Many investors worry the answer is absolutely not. Investors are free to hope that Trump isn't planning to fire Federal Reserve Chair Jerome Powell. Or to push for a weaker dollar, either unilaterally or via some 'Mar-a-Lago accord' that sends the yuan shapely higher. Here, too, many investors fear he will. Folks can hope that Trump and Xi will soon sit down for 'grand bargain' talks between the Group of Two nations. Yet Chinese leader Xi Jinping isn't the caving type. Has Beijing offered Trump the slightest concession on access to China Inc. so far? Odds are, many economists worry, the Trumpian fireworks will resume. Finally, it's unclear whether Moody's got Trump World's attention in the right way. Any other US administration would internalize why Moody's cut Washington to Aa1 the way S&P Global and Fitch Ratings did in years past. Not according to Bessent's take. 'I don't put much credence in the Moody's' downgrade, Bessent told CNN. He stressed that the tax-cut bill being debated in Congress remains on track. And that it would spur economic growth that generates more than enough revenue to pay down US debt. It's an unwelcome reminder — and poorly timed one — that Trump's 1985 mindset is colliding with the global realities of 2025. As Washington gives 'trickle-down economics' another try, its credit rating hangs in the balance. So does trust in the dollar. Bessent calling credit ratings a 'lagging indicator' isn't the witty argument he thinks. Not at all moment when the Republican Party is pushing a budget package — Trump's so-called 'big, beautiful bill' — that will add trillions to the federal deficit. Estimates are US$4 trillion over the next decade added to the federal primary deficit, excluding interest payments sure to skyrocket. For now, some market participants are siding with Bessent. 'Most are dismissing the news as not a big deal, and perhaps it's not,' says Michael Kramer, founder of Mott Capital. 'After all, the US has already had two prior downgrades.' Yet there's no arguing that the timing of all this could hardly be worse. 'The key issue,' Kramer says, 'is that this downgrade comes at a moment when term premiums were already rising, potentially adding even more upward pressure.' As such, notes Tracy Chen, a portfolio manager at Brandywine Global Investment Management, it remains to be seen whether the market reacts differently as the 'haven nature of Treasury and the US dollar might be somewhat uncertain' now. But the dollar's troubles go much deeper than that. The euro's rally in recent weeks has global markets buzzing about viable dollar alternatives. European Central Bank President Christine Lagarde said the recent rise of the euro against the dollar is a consequence of US President Donald Trump's erratic policies and an opportunity for Europe. 'It's impressive to note that in a period of uncertainty when we should normally have seen the dollar appreciate significantly, the opposite happened: the euro appreciated against the dollar,' Lagarde told La Tribune Dimanche newspaper. 'It's counterintuitive, but justified by the uncertainty and loss of confidence in US policies among certain segments of the financial markets.' One big worry is that US inflation remains stubbornly high as gross domestic product shrinks. Stagflation risks may be riding in real time as Trump's tariffs hit US households. 'Even if a mild recession takes hold, a higher inflation outcome seems assured given the addition of tariffs to the trajectory of ever bigger budget deficits,' says Steve Blitz, managing director at TS Lombard. 'Monetary policy alone cannot reverse the trend without the deficit shrinking.' Jeffrey Roach, chief economist for LPL Financial, adds that 'the uncertainty about what might happen after these temporary trade deals makes things difficult for the Fed since stagflation remains a risk. If the fog does not clear, the Fed might not be able to adjust policy in June.' In other words, Trump's climbdown on tariffs might've been too little, too late. 'Even though tariff fears have calmed, more time is needed to see how the existing tariffs take shape and affect inflation and the economy,' says Skyler Weinand, chief investment officer at Regan Capital. 'Unless we start to see unemployment rise significantly, the Fed is likely to keep rates unchanged for the next six months.' Analysts at JPMorgan Chase & Co point to a Moody's report from 2023, when the ratings company shifted its US outlook to negative. On Friday, Moody's said US governments have consistently 'failed to agree on measures to reverse the trend of large annual fiscal deficits and growing interest costs.' In 2023, it warned that this moment would likely come. But it's an open question whether Moody's is about to revive another 2023 opinion that got lots of attention. At the time, Moody's argued the dollar's place at the center of the global trading system was safe. As Moody's wrote in May 2023: 'We expect a more multipolar currency system to emerge over the next few decades, but it will be led by the greenback because its challengers will struggle to replicate its scale, safety and convertibility in full.' Yet, it warned then that increased US protectionism, weaker government institutions and concerns about a default would imperil the dollar's global dominance. 'The greatest near-term danger to the dollar's position stems from the risk of confidence-sapping policy mistakes by the US authorities themselves, like a US default on its debt, for example,' Moody's warned two years ago. 'Weakening institutions and a political pivot to protectionism threaten the dollar's global role.' It hardly helps that Trump's inner circle has, at times, flirted with the idea of limited defaults to gain leverage over trading partners. Another big risk is the collision course between Trump and Powell. In a social media rant over the weekend, Trump wrote: 'THE CONSENSUS OF ALMOST EVERYBODY IS THAT, 'THE FED SHOULD CUT RATES SOONER, RATHER THAN LATER.'' He added that 'Too Late Powell, a man legendary for being Too Late, will probably blow it again – But who knows???' TS Lombard's Blitz says that 'one can, in fact, imagine a scenario where the Fed helps the dollar strengthen to keep in check the real interest rates needed to sustain needed inflows and all that, in turn, overwhelms the tariffs as a barrier to keep firms from sourcing foreign capital and labor.' This, however, would enrage Trump, upping the odds that he tries to fire Powell. Herein lies one of the top risks to US Treasuries and the dollar. This fragility of US Treasuries is imparting a unique leverage point for the Bank of Japan, PBOC and other top Asian monetary authorities. Asia's main leverage over Washington right now is bonds, currencies and in services trade. This latter piece refers to America's deep dependence on Asian markets for financial services, technology, and intellectual property. The mechanics of Trump's trade war suggest an imperfect understanding of the US economy's Asia-related vulnerabilities. And poor situational awareness, as China and the Global South join forces to find an alternative to the dollar.
